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From the Desk of the Executive Director

Ken Phillips is co-founder and Executive Director of Independent Contractors of Australia. He is a published authority on independent contractor issues and directs research on related commercial and trade practices issues. Through his numerous articles in newspapers and think-tank and academic journals, Ken is known for approaching issues from outside normal perspectives and is frequently sought out for media comment.

Labor’s culture spells trouble for the Victorian economy

Monday, June 15, 2015

I’ve previously argued that the circumstances have developed for a politically induced recession in Victoria. It’s a big claim and only time will tell if my analysis has substance but it’s a claim that has historical precedent.

The central reasoning for the claim comes from an understanding of the Victorian Labor Party and union movement. These bodies don’t view commercial contracts as things having an integrity removed from politics. Instead, they see contracts as being entirely subject to political interests and whims. In fact, they view business deals as instruments to further political objectives.

The most recent example is the revelations in the Royal Commission into Union Corruption. The Australian Workers Union in Victoria has been accused of doing deals with businesses to reduce workers’ wages. Furthermore, businesses have paid union dues for workers without the workers belonging to the union. This has bolstered AWU voting power over Labor Party pre-selections and so on. That is, the allegations point to a culture and behaviour where business deals are entirely political instruments.

It’s one thing for this sort of behaviour to operate when a union deals with business. Such practices can be alleged to be corrupt but the scale of importance becomes huge when this mindset is translated to government.

This is what’s happened under the Daniel Andrews-led Victorian Labor government. Their approach is that contracts are there to be broken if the politics dictates. That’s why they could justify (to themselves) the breaking of the contract to build the East-West road link. The politics changed so they had no hesitation in breaking the contract.

They followed this up by breaking a lease for $20 million of private medical investment and donations in a new cancer clinic. There’s more happening it would appear. I know of at least one smaller contract the Victorian government seems to be manoeuvring to break. There’s a pattern emerging that’s been seen before.

The Cain Labor government was elected in Victoria in 1982 after some 27 years of Labor being in opposition. One of their first moves was to challenge the electricity supply contract the prior Hamer Liberal government had signed with Alcoa. Alcoa was a third of the way through building a giant new aluminium smelter at Portland in Western Victoria.

Since about 1979, The Age newspaper had been running a campaign against the smelter alleging the electricity supply deal involved large subsidisation of the price by taxpayers. It became a huge political issue. The Cain Labor government sought to break the electricity deal. To the government’s shock, Alcoa stopped the project and walked away. The largest industrial investment in Victoria stopped dead.

It took two years for the Cain government to convince Alcoa to restart the project. But the cost was an even better electricity supply deal for Alcoa than had been struck by the Hamer government and the Cain government had to buy into the project as joint venture partners.

What is enlightening is the striking similarities between the Cain Labor smelter debacle and the Andrews Labor mess with the East West Link cancellation. Both circumstances involved the biggest projects at the time and both had become politically charged. On each occasions Labor trashed the contracts and Victorian taxpayers ended up paying as a result.

The cultural ‘thread’ on display running through Victorian Labor in government, is a disdain for the ‘rule of commercial contract.’ Contracts mean nothing if politics points in a different direction.

Following the smelter debacle, the Cain government famously embarked on a wide range of commercial ventures believing it could better the private sector at financial wizardry. By 1990, the Cain government had plunged Victoria into a series of rolling financial crisis with collapses of government enterprises notably the Victorian Economic Development Corporation, Tricontinental Bank and Victorian State Bank. The result was arguably the worst recession in Victoria since WWII.

Likewise, the Andrews government has set aside $1 billion as an ‘investment’ fund to do, who knows what?

The Bracks/Brumby Labor governments (1999-2010) were extremely careful not to follow the Cain government model. They governed Victoria with huge success in comparison to Cain. But the Andrews Labor government has, from its earliest days, shown itself to be startling similar to the Cain goverment.

This doesn’t mean a quick descent into economic problems. The Cain government won three elections before the recessionary consequences of its behaviour saw it defeated.

The critical issue is contract integrity. If commercial contracts are simply political playthings, then trust in doing business in Victoria slides away. The cost of doing business blows out. Business winds back. That’s the path on which the Andrews Government has embarked.

[First published in Business Spectator, June 2015]

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